A 1031 exchange is something that everyone talks about, and many people don’t really understand correctly. It only applies to income producing properties. And yes, even some agents still get that wrong.
What it is, is a tax deferral strategy. You sell one qualifying property, reinvest the proceeds into another, and push the capital gains taxes down the road. You have to have a qualified intermediary. Usually your real estate attorney will have a relationship with one, so they can guide you- but if you look it up, there are plenty of them out there.
There are also strict timelines. From the day you sell, you have 45 days to identify your replacement property, and 180 days total to close on it. Miss either of those windows and the whole thing falls apart.
You have to remember that it’s not really making the taxes go away, exactly. Technically, itโs a deferral. But in reality, if you keep exchanging and hold the final property until you die “swap til’ you drop”, there can be a step up in basis that wipes out the deferred gain. So, in the right scenario, those taxes may never actually get paid.
I personally think that some people get caught up in the idea of this “hack” to eliminate taxes, when it’s not always the best choice for their lives. I’ve seen so many landlords who are ready to be done with the grind of investment properties just keep rolling into new properties to chase that deferred tax outcome. My advice is that a certain point, itโs okay to say, โIโve had a great run, Iโm cashing outโ- but hey, that’s just my opinion.
As with anything real estate or just in life, you need to really think about your own personal situation and what best fits your goals.
Esquire Realty Ciaramella & Co. 
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